The IVA Protocol 2021 was published in April 2021. This replaces the old 2016 Protocol which should not be used for new IVAs after 1 August 2021. The terms of IVAs already in progress are not affected by the new version.
The new Protocol aims to be easier to understand for people in debt – for example “debtor” has been replaced by “consumer” and it has been put into the typical “gov.uk format”.
The Insolvency Service has highlighted some of the differences in Dear IP Issue 126.
If you are interested in the perspective of someone in the insolvency industry, see New IVA Protocol: what has changed for the Proposal and Conditions? by Michelle Butler.
This article looks at what I think the important changes are. It is aimed mainly at debt advisers. I’ll write a separate article for people looking at an IVA with a checklist of points. to be sure clear about.
Quotes in italics are from the new protocol.
Contents
Trying to stop IVA mis-selling
Various new clauses are intended aimed at IVA mis-selling.
The consumer may have been referred to the nominee by a third party. The insolvency practitioner should take steps to ensure that any third-party lead generator and/or debt packager referring IVA leads to the insolvency practitioner should be FCA authorised and, if they are not, the insolvency practitioner should direct the consumer to obtain advice from someone who is FCA authorised or the nominee should provide advice under FSMA exclusion.
My comment: Ineffective. The IVA firm will either be FCA authorised or, more commonly, give advice under the FSMA exclusion, so this is effectively null. It should have said that leads can only be obtained from a lead generator who is FCA authorised, with no exceptions and no ways around it.
The nominee has a responsibility under the Insolvency Code of Ethics to ensure that the lead from which they have received the referral for the consumer’s case has provided appropriate and detailed advice on debt options and has not misled the consumer in their advertisements. The guidance on monitoring insolvency practitioners: Advertisements, marketing and debt advice provides further information. Where the nominee considers the consumer has not received appropriate advice on the available options, they should ensure that the consumer receives such advice and has made an informed choice as to whether an IVA is the most appropriate option given their circumstances.
My comment: Misses the main point. It is essential to be sure that the first contact with someone with a debt problem is not misleading. Otherwise someone is already sold on the idea of an IVA being the answer to all their problems when they are passed to the IVA firm. Here is an example of people being lied to by a scammer sending threatening emails.
In the event the IVA is in breach, the supervisor should complete a review of the circumstances and document the reasons for the breach. If the breach occurred prior to the first payment to creditors, the insolvency practitioner should include in that review consideration of whether the IVA was a sustainable product for the consumer and consider if there are any lessons to be learned. If it is deemed that either the IVA was not the most suitable debt solution for the consumer or there is evidence to suggest that such a breach was likely (both based on the consumer’s circumstances and all the information they provided to their nominee, any lead generator or debt packager) any payments made should be refunded and the IVA terminated.
My comment: There is a good idea in there somewhere, but it won’t work in practice.
- It should not be limited to breaches before any payment is made to creditors – that is too early.
- The problem is mis-selling, not whether the IVA was sustainable. An IVA firm may consider the customer can pay £100 a month on a sustainable basis but if the customer was eligible for a DRO then the IVA was mis-sold.
- Refunding payments is not always the best solution for the customer. It may be preferable for the IVA to be completed on the basis of the funds paid to date if the customer would have to enter a DRO or bankruptcy where there would be no return to the creditors. The customer should be given the choice.
- A copy of the review should be given to the consumer who should be signposted to a free sector debt advice service for advice about this.
Clarifying equity release
How much equity might have to be released?
You might expect this was just a matter of getting a calculator out… but the 2016 protocol caused problems. The intention always was that you are allowed to retain 15% of the value of your property after any equity release, as Stepchange says here. There was a calculation showing this in Annex 7 of the 2014 Protocol. But this was not included in the 2016 protocol.
That omission resulted in some IVA firms asserting that a debtor can only retain 15% of the calculated equity, rather than 15% of the value of the property. As an example, see this Payplan calculation. There Bob may be asked to remortgage for 42,500 in addition to the mortgage plus secured loan of 100,000. So with a property value of 150,000 he would only be left with £7,500 of equity. Not 15% of 150,000 which is £22,500.
Of course not many people have been asked to get a remortgage, but these calculations matter for the people being asked to get a secured loan and for people who do not have much equity where they will only be asked to pay for another year if the equity is over £5,000.
Has the new 2021 protocol clarified this? Well probably. It does say in Annex 1 Standard Terms and Conditions:
Where the consumer can release equity, the value (net of any refinancing or other associated costs) will be introduced into the IVA up to 85% of the value of the property
and
Re-mortgages will bring the amount secured against the property to no more than 85% of the total value of the property.
So that is clear. The example included in the National Debtline factsheet shows how the calculation is intended to be done.
But in Annex 7 it says:
Total equity is to be calculated based on 85% of the current value of the property less the value of any secured borrowings against the property (including any early redemption penalties or charges).
This is sloppily drafted so it can be read either way, depending on whether you take 85% of the property value and then deduct the secured borrowings (correct) or take 85% of the remaining property value after deduction of secured borrowings (incorrect). I hope this will not turn out to be a problem in practice and the firms using the previous incorrect calculation will change.
There is no included example in the new Protocol, which would have been very useful but a customer will be given a worked example for their own property before the IVA is proposed.
My comment: I think the new Protocol is clearer. And it is good that a consumer will get a worked example of their equity calculation at the start of the proposal. This will enable informed consumers to see exactly what is proposed and potentially decide to change to another IVA firm if they are not happy. But how many consumers are informed enough to look at this in detail and query the equity calculation? Debt advisers need to be aware of the potential issues here if they have a client saying late on in their IVA that the equity release is unreasonable.
Clarity from the start about when ER may be required
Previous protocols have led to many customers with mortgages not being clearly informed about what may happen in the last year of their IVA.
Some people were told at the start there was no chance of them having to release equity so their IVA would just be extended by a year, only to find they were being asked to take an expensive secured loan instead. Others were told as there was no chance of equity release, their IVA would be set up for 6 years instead of 5, but this was not in the signed documentation so after their IVAs were sold to a new IVA firm, they were then asked to pay for a 7th year.
So it is good that with the 2021 protocol everyone with a house will be told from the start which of three groups they are being placed in:
- Option 1 – equity is below the £5,000 minimum value. The customer will have a 5 years IVA with no need to review equity in last year.
- Option 2 – equity is over the £5,000 minimum value and it appears unlikely equity can be released based on “the current lending criteria of specialist brokers”. Here a 6 year IVA will be set up from the start with no need to review equity in the last year.
- Option 3 – 5 year IVA with a review of equity in 5th year and an extra year added if equity release is not possible.
But how well will this work in practice? It seems possible that some firms who are happy to make their clients take very expensive secured loans may put everyone with more than the minimum equity into option 3. Might some firms who would not contemplate a secured loan at very high rates of interest put all their clients into Option 2?
My comment: The percentage of clients being put into options 2 and 3 seems like a very important piece of information that clients should know before they choose which IVA firm to talk to.
Two other small improvements
Two other definite improvements in Equity Release proposals in the new 2021 Protocol are:
- stating that the property valuation is to be produced by the consumer;
- clarity that where a couple has interlocking IVAs, the de minimis value is £10,000.
But no more clarity about secured loan
The new protocol has the same provisions as the 2016 protocol regarding people having to take a secured loan rather than a mortgage. In other words there is NO protection against people being forced to sign up to long-term very expensive secured loans at a rate of interest that will be variable. I have seen examples of 19% interest being proposed.
My comment: No-one enters an IVA expecting to have to take on dangerous and expensive debt at the end of it – IVAs are meant to solve your financial problems. There should be some protection written in that limits the interest rate that can be charged on these loans, but there is nothing here.
Again this is an area where people taking out an IVA need to be informed whether their IVA firm has made any clients take out these loans and what rates were charged. So that people can compare firms and avoid the ones that do this.
Other changes
No statutory interest
It is now specified in the Early Completion clauses in Annex 1 and in The consumer decides to sell their home clause in the General principles that consumers only have to repay their debts in full plus the IVA fees, and that statutory interest cannot be added on.
My comment: This is welcome.
Trust comes to an end with completion certificate
The Trust created by the IVA arrangement will be extinguished on termination of the arrangement or the issuing of the completion certificate by the insolvency practitioner.
My comment: At last! It was the absence of this clause in previous protocols that opened the way for the Green v Wright decision and the subsequent pursuit of PPI reclaims for already closed IVAs. Now this loophole – which was never intended to be there – has been closed for IVAs using the new protocol.
Completion certificates
This certificate will be issued within 28 days of all payments and obligations being satisfied and no later than 6 months from the date of the last payment.
My comment: 6 months seems a very long time. But at least there is some deadline written in here.
Vulnerability
Vulnerability can take many forms and insolvency practitioners should treat all consumers fairly… Insolvency practitioners should ensure they follow the current published guidance from their regulator on dealing with vulnerable consumers. The FCA guidance is a benchmark for the those providing debt advice to consumers who may have vulnerabilities.
My comment: It is good to see the FCA’s recent guidance recognised as best practice. Whether IVA firms will pay any attention to this is a different matter.
Kelly says
Hi Sara I’m trying to get my Iva to put forward funds paid to date to my creditors, there being really difficult saying I can afford the Iva etc , I’ve now stopped payments and told them to fail Iva as I’m sick of going round in circles with them , will any off this news affect my situation.
Sara (Debt Camel) says
I am sorry they are being difficult. A DRO may be the simplest option for you.
None of the points in the above article matters for you – they on;t apply to new IVAs which will come under the new set of standard conditions.
Julie Jones says
Hi Sara,I’ve finally finished my iva ,I’ve had chairman’s report of variation meeting of creditors.
The only one that was against us were the council tax arrears.
Also the following resolutions that were not approved
1,- that a certification be issued by reason of debtors breach !!!!! The latter I don’t understand can you help please
Sara (Debt Camel) says
I think you need to ask your IVA a firm what that means.
Foggy says
Speak to a DRO intermediary for a proper examination of your I&E to see if you qualify.
Sara (Debt Camel) says
Good advice from Foggy. I think National Debtline had already said Kelly will qualify for a DRO?
Chris Bone says
Always a puzzler how people with IVA’s (and possible equity) can be expected to release equity or find secured loans, surely the insolvency entry/credit register entry will scupper that instantly? So why included a clause that is unrealistic? May be missing something though.
Sara (Debt Camel) says
There are lenders that will offer secured loans at such very high interest that they should be banned.
Chris Bone says
Exactly, the loan agreements would make interesting reading, certainly in terms of APR rates!
Another interesting point though, if the idea of IVA’s was in part to help homeowners in debt remain in their property, it seems inequitable that people with higher equity are expected to try to raise a lump sum after 5 years. if the equity was that high, why did the IVA get approved in the first place, surely the creditors would take the view that the client was too equity rich at the outset and should sell the property to repay debt, and they should reject the IVA proposal? Rather than the burden of potential “dangerous and expensive debt” at the end of it? Just a thought.
Sara (Debt Camel) says
I agree. I think it should be decided at the start 5 years or 6 years, no equity release, no uncertainty, creditors can vote to reject if they want.
MissoldIVACustomer says
Hi Sara
I believe I was mis sold my IVA. I can provide info regarding why this is, but my post was too long to do so on this post.
I have spoken with a couple of solicitors about this, and they agree that I have a case. They also have said that a huge amount of IVA’s have been mis sold by Creditfix.
The Solicitors have said they will be trying to recoup all payments into the IVA, including charges, and that all monies that have been distributed to the creditors would remain with them. I have been advised to allow the IVA to fail, and then let the Solicitors deal with the complaint and the creditors.
My concern is that if I let the IVA fail, the creditors could apply backdated interest to my debt, which would put me in a worse position than today, as even if I get all the money paid in back, my debt could balloon dramatically given that around 10k of the original debt was with very high interest credit cards. The last thing I want is to end up owing more money when I am within reach of clearing the whole debt. The Solicitors have advised me that though this is possible, it is highly unlikely and hasn’t happened before. They won’t word it in a way that gives me 100% confidence though.
I’m really torn about what to do. I am sure I have been mis sold, and I want this IVA over. I don’t know where to turn to for advice on this, as everyone seems to have some sort of agenda and official information on IVA’s in general seems very thin on the ground.
Sara (Debt Camel) says
Quite a few questions so I can see more of the picture.
Can you explain briefly why you think you were missold this – what were your better options – a debt relief order, bankruptcy or a debt management plan?
How large were the debts that went into your IVA and how much were you paying a month? Do you have a house with equity or a car worth over £2000?
Were you in any way encouraged to change the income & expenditure figures that went into setting up the IVA, either up or down?
The Solicitors have advised me that though this is possible, it is highly unlikely and hasn’t happened before
Well that would be because very few of these cases have been won so they have no idea what will happen.
CAn you say what the solictors are planning to charge for this? Or are they planning to make their fees through “sorting out” your debts after it fails?
MissoldIVACustomer says
Original debt was around £22k. I was paying £135 and I’m now paying £290.
I don’t own my own home, and I only paid £2,400 for my car a few years before my problems arose.
One of them wants around £500 in total payed by instalments (they say any further fees will be claimed from Creditfix), the other is on a no win/no fee basis.
I believe I was mis sold my IVA for the following reasons:
1. My situation was always temporary, and this was made clear to Debt Guardians, who provided me the advice, and Creditfix who are administering the IVA. A DMP would have been a much better option for me. I am about to reach my third review, and it looks like I will be able to clear 100% of the debt sometime in the next 3 months (I am now self employed and have invoices out that should cover it)
2. I raised this concern with Creditfix and tried to back out of the IVA, as I realised a DMP would be better before the creditors meeting, but I was told it was too late.
3. The income/expenditure form was completed by Debt Guardians rather than me.
4. I was told that a DMP would do more damage to my credit file and remain on it for longer than an IVA.
5. I was told that I would have no problem renting a property while I was in an IVA.
6. I was told to lie to Creditfix and say that I was splitting up with my wife, to get the IVA approved.
7. I wasn’t told anything about the IVA Trust – something I have only just discovered.
8. I hadn’t missed any payments to any creditors at that point.
9. I was at my lowest ebb, getting double vision through stress, and wasn’t in a fit state to make good decisions.
Sara (Debt Camel) says
I am sorry I missed your reply. I will email you later today.
Dee says
I have just received a cheque for payment of statutory interest for mis- sold Ppi.
I completed my Iva in 2018 and received a completion certificate in march 2019.
However despite this Debt Movement, who I have never ever instructed or had any correspondence with have taken about 75% of the award forClaims Management Company fee and Iva supervision fee.
Is this allowed?
Sara (Debt Camel) says
That’s IVAs for you. there is nothing you can do about these scandalous charges.
MarkS says
I note that statutory interest has been removed. Does that mean that an agreement under the 2016 protocol includes statutory interest for early payment via windfall?
We have interlocking ivas under the 2016 protocol and I can’t see any mention of statutory interest anywhere?
Also if the windfall is recievd somey by one person, and it is sufficient to pay their IVA plus fees, can the IP insist the remaining value of the windfall be paid to their partners IVA?
My wife has an inheritance that can clear her IVA in total.plus fees but she was hoping to use the small amount that is left as her pera tal contribution for our son studying at university. We ga e no means if making this par.etal contribution otherwise. But we are under the 2016 protocol and I can’t get clarity on this anywhere.
Sara (Debt Camel) says
I am afraid you need to talk to your IVA firm about this. It depends on the terms of your IVAs and interlocking IVAs may not be standard.
If you feel your IV firm is being unreasonable, come back here and say who the firm is.
MarkS says
Thanks for taking the time to reply Sarah, I really appreciate it.
I also appreciate that the only definitive answer to queries such as this is “speak to your IP”
And we will, it’s just the funds are still with the solicitor and she has advised not to speak to them about this until my wife has the inheritence in her bank account. That could still take a while.
I have read the our agreement, it is titles 2016 Protocol IVA Forum, and I cant see any mention of statutory interest. But when I read this article about it being remobed in the 2021 protocol, I guess that means it does apply to the 2016 protocol?
Having looked over all correspondance from PayPlan, it seems we DO have two seperate IVA’s though and they are NOT interlocked . They state: “IVA stands for Individual Voluntary Arrangement so your IVAs are independent of each other but as we are aware you and Tracy are a couple we link your files on our system”.
So again, in your esperience, which I appreciate cannot be treat as a definitive answer, is it likely that my wifes inheritence surplus after she has used her inheritence it to exit her IVA by paying it off in full, will be hers to keep, and treat as her asset and not to be absorbed by making an additional contributon to my IVA? The IP is Payplan
Sara (Debt Camel) says
Some firms didn’t charge statutory interest before the 2021 protocol came in.
I wouldn’t be surprised if your wife can keep the surplus, but these situations are very individual and I don’t recall seeing a similar one with Payplan, so that is not based on experience.
You also need to consider if your IVA monthly contributions will go up as hers have ended. And whether it is possible to a regular contribution to your son to be treated as one of her expenses.
MarkS says
Thank you. I understand it’s all individual but I really appreciate your input. Do you want me to update you when we get an outcome incase the information is of use to others?
BTW, yea I had factored in my iva payments would increase has her stopping increase the desposible income within the i&e, but I’m hoping that’s the only consequence.
Sara (Debt Camel) says
I think you should push for an allowance in your I&E for your son
MarkS says
Thank you. Im sorry to bother you again, this will be the last time. Do you know where it is possible to get affordsble qualified legal advice?
The terms of an after acquired asset in the agreemnet are:
After-acquired assets must only be sold or realised to the extent necessary to repay the creditors 100
pence in the pound including the costs of the arrangement.
Im guessing that 100% in the pound implies the original debt plus statutory interest, but thats not what it says. This agreemnt was signed literally months before the 2021 protocol came into being so I think its worth a second qualified opinion, The IP says that it does, so im guessing it does, but I would like a second opinion, they have been wrong before, on payment breaks for example I just dont know where to go.
Sara (Debt Camel) says
have you actually told your IP about your wife’s inheritance? if you haven’t you are just guessing and there is no point in spending money on a solicitor until you have more facts.